Fiscal & Political Report

Written by Ana-Maria Anghel & Cezar Petrescu

Political Updates

Internal Affairs

GOVERNMENT’S ANNUAL WORK PLAN, UPDATED. Yesterday, the Government updated its Annual Work Plan, the tool for planning the regulatory process at the level of the central public administration. Since the National Resilience and Recovery Plan (NRRP) obliges the governors to take measures to improve the predictability of the regulatory process, the executive had to present, in yesterday's meeting, the respective updates. Thus, the number of draft normative acts planned for 2024 was raised to 253 (of which 89 draft bills and 164 Government Decisions), compared to 216 proposals introduced at the beginning of the year. Of the 253 draft normative acts, 132 are considered priority projects. However, in the first 6 months of this year, the percentage of approval of the planned normative acts was approximately 31%, 67 normative acts were approved out of the 216 proposals communicated at the beginning of the year. And this is an issue for the Government since it is important to increase the degree of compliance with this planning, at least up to the level recorded in the previous year - 50%, in order to comply with the target assumed in the NRRP.

For example, in October this year, the Ministry of National Defence shall issue the draft bills on the preparation of the population for defence and on the national defence of Romania. Instead, the decision approving the public policy in the field of broadband communications should be adopted in the last month of the year, while the draft bill on renewable energy is planned for November. Additionally, the National Register of diabetes and prediabetes should become operational after its planned adoption in September. Moreover, the Ministry of Finance plans another update to the AML/CFT legislation (Law no. 129/2019) and to Law on issuers of financial instruments and market operations, both to be adopted next month. Instead, the state budget for 2025 would be adopted in November, leaving one month at the disposal of the Parliament for its approval. And finally, the Labour Ministry could amend the laws on teleworking and internship in October, while the mechanism for establishing the gross minimum basic salary per country guaranteed in payment will have to wait until December this year. We do expect the governors to adopt at least half of these normative acts planned for the last 6 months of this year, just as we expect some of the projects to be left as a ‘legacy’ to the next Government, which will be established after the parliamentary elections in December.

HEALTH MINISTER RAFILA FACES DISMISSAL OVER ST. PANTELIMON SCANDAL. Following the scandal from the St. Pantelimon Hospital in Bucharest, Minister of Health Doctor Alexandru Rafila (PSD) might lose his portfolio. While the dignitary claims that the crime in question, premeditated murder, is not the responsibility of his ministry, former Minister of Health Vlad Voiculescu (USR) accuses Rafila of lying. The current minister has recently said that the Ministry's Control Body did not find irregularities at the St. Pantelimon hospital because "they are economists or lawyers", thus excusing the ministry's lack of action in this scandal. However, it seems that PM Marcel Ciolacu might not ‘forgive’ his party colleague. The Prime minister declared yesterday that in the event that the charges are proven, and the prosecutors' indictment reveals any fault in the performance of administrative and medical checks, he will demand resignations "from top to bottom, at the ministry, the hospital and the College of Doctors". Given the information coming from the mass media concerning the charges from the hospital, Minister Rafila has big chances of losing its ministry a couple of months before the end of this Government’s mandate. Since the presidential and parliamentary elections are coming, society expects firm actions and decisions of the main political decision-makers, especially in social scandals and intensely publicized cases, and PM Marcel Ciolacu could use the dismissal of the health minister as an ace up his sleeve.?

External Affairs

US ELECTIONS - HARRIS VS TRUMP. Kamala Harris, who will most likely face Donald Trump in the presidential elections in the United States, has chosen her vice-president - Tim Walz, the governor of the state of Minnesota. About this election, Democrat and current President Joe Biden declared that "they will be the strongest defenders of our freedoms and our democracy". Tom Waltz served the country for 24 years in the Army National Guard and became the highest-ranking enlisted soldier to ever serve in Congress. As governor, he had a rather progressive agenda, with topics that range from climate change goals, tax cuts for the middle class and expanded paid leave, up to advocating for women's reproductive rights. However, he did support gun rights, an extremely sensitive subject for Americans. Shortly after announcing her proposal for deputy president, Kamala Harris secured, for the first time, the first place in the voting intentions of Americans (37%), leaving Donald Trump behind (34%) even in the most disputed states.

Fiscal and Economic Updates

Overview

WHEN WILL THE NEW FISCAL CHANGES TAKE EFFECT? The Minister of Finance announced that the draft GEO which foresees a series of new fiscal measures will be further discussed with private sector representatives before the Government decides on its final form. We remind you that the ministry proposes a digital tax identification number, limitations on cash transactions for those foreclosed for debts owed to the state, changes to garnishments and installment payments, as well as restrictions on the sale of real estate for debtors. In this context, the minister expects the GEO to enter into force on the first day of October, although there are different deadlines for several measures. For example, the digital tax identification number would become applicable on July 1, 2025, while the restrictions on the sale of real estate for those in debt to the state budget will come into force on January 1, 2025.

MONETARY POLICY INTEREST RATE SET TO 6.5%. The second consecutive decrease of the monetary policy interest rate, now 6,50% per year, was announced by the National Bank of Romania (NBR). Subsequently, the interest rate on the lending facility (Lombard) was also reduced to 7.50% per year, same as the interest rate on the deposit facility - 5.50% per year. The National Bank’s decision is based on the expectations for the annual inflation rate to fall at the end of the current year. The inflation is expected, after a temporary increase in the second quarter of 2025, to return and, until the end of the projection horizon, to remain slightly below the upper end of the target range, and therefore at levels somewhat lower than those in the previous forecast. In this regard, Minister of Economy ?tefan Radu Oprea was seen rather pleased with the NBR’s decision, claiming that the reduction of the monetary policy interest rate will mean access to less expensive credit for companies in Romania, considering lowered interest rates charged by banks. The minister also showed that the decrease in inflation, which led to this decision, confirms the “correctness of the measures to cap the commercial addition to basic foods and the price of energy and gas.”

On the Recovery Plan

THE PUBLIC SECTOR WAGE REFORM – POSPONED. The public sector wage reform, one of the main conditions that Romania has to meet in order to apply to the European Commission for the fourth NRRP installment, will most likely be postponed after the elections scheduled for the end of this year, according to Labor Minister Simona Bucura-Oprescu. It seems that the government's increased spending does not currently allow for such a reform, which requires even greater sacrifices from the state budget. Thus, the government is relying on the fact that after the elections it can take unpopular decisions without electoral consequences, which will most likely mean tax increases in order to maintain a balanced budget. We recall that the government cannot submit payment request number four until it receives the final answer and the money from the third installment from the European Commission. The delay in the third stage is also related to the lack of reforms undertaken by the executive since 2021, and here we highlight the Law on Special Pensions.

GOVERNMENT DRAFTS ORDINANCE FOR SUSTAINABLE DEVELOPMENT NETWORK. Last week, the General Secretariat of the Government issued a draft ordinance establishing the Network of Cores for Sustainable Development in Romania, a body with an advisory role, without legal personality, under the coordination of the Department for Sustainable Development. The role of the Network is to support the implementation of the National Strategy for the sustainable development of Romania 2030. The cores are made up of personnel with experience in the fields of sustainable development, graduates of the "sustainable development expert" post-graduate course. Even though this normative act is not a milestone in the 14th Component of the NRRP, the training of civil servants to obtain sustainable development skills, necessary for this Network of Cores, is part of Romania’s Plan (Milestone 415). In the upcoming weeks, we expect the Government to adopt this ordinance.

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